Company
Structure
Between one man business and limited
liability companies
Limited Liability Company
A limited liability company is just
one of two major sub sectors of company formation. There is the one Man Company
/sole proprietorship and Limited Liability Company.
The limited liability company is a
public company while the one man business is a private owned establishment. The
public companies are usually large conglomerates, or businesses that operate
huge budgets and high net worth business deals.
They are limited in company terms
which mean that they are only liable to the extent of their financial input.
The liability not extending beyond companies cash deposit debts, property or
equipment.
The debt profile does not include
director’s personal assets or wealth except during embezzlement and legal court
rulings. Privately owned companies do not enjoy this and are liable even to the
extent of their personal saving and wealth.
How Public Companies Work
Public companies are formed through
the initial offer of share to the general public. The shares are called ordinary shares.
A private company that has outperformed
expectation and fulfill government laws governing limited liability may go
public. They offer some of their shares to the general public.
If the private company can meet the financial
requirements to go public it is given accreditation and allowed to go public. The
ordinary shares offered by public companies carry monetary value of that share
price subject to fluctuations and price appreciation or depreciation.
The share value can not exceed its
worth. The company can also issue debenture shares. Debenture share holders may not enjoy price
appreciation the way ordinary share holders do.
However investors get back their
full investment in the case of the limited liability company’s liquidation. The ordinary share holders have to wait to get
any sort of payback.
Public Company Investors
The public company may also seek
core investors who may have company shares up to 45% of the public enterprise.
Core investors are not limited to individual investors but could be bought by
other companies, cooperatives group or the company staff.
The company may seek funding from
public offers where shares are strictly governed by stock exchange rules and
government guide lines. The shares are usually ordinary and are worth only the
quoted price.
Financial responsibility to the company does
not extend beyond the stock held or value of share bought. For example $50
shares can not exceed its monetary value of liability to the holder during
liquidation.
Management Board of Limited
Liability Companies
The board is usually constituted by
the share holders during annual share holders meeting. They use ballots to cast
votes and count.
The ordinary shareholder is limited during
voting to the number and value of the shares he holds. Top managerial positions
like accountants, company secretary, managing directors are hired by the board.
Such positions are left to professional to run
the company. The share holder don’t have a say in company policies and core
business decisions although at times they make them think they do.
The chief executive is usually a
political position and could be imposed on the company. An investor with very high number of share
close to 50% of the total companies share holding has such powers.
The executive arm takes care of the
hiring and firing.
Business
Type
What
is your preferred business format?
- One Man Business
- Partnership
- Limited Liability Company
Incorporation
Both public and private companies
have to incorporate the business. The public company needs to have a memorandum
of association and article of association.
This shows the management structure
and business type including location and financial strength. This document
makes the company a limited liability company.
The company is also issued a
corporate charter and a certificate of incorporation. The certificate shows the
companies liabilities and allows government regulations, penalties and
incentives.
Types
of Business Format
|
one
man business
|
partnership
|
Limited
liability company
|
|
Unlimited liability
|
Unlimited liability
|
Limited liability
|
|
poor funding
|
moderate funding
|
Excellent Funding
|
|
lack of access to bank loans
|
access to loans
|
Access to Loans
|
|
|
|
Government subventions
|
Advantages of a Limited Liability Company
1 The ability to rise adequate funding through sale of shares, bank
loans and government subventions.
2 Easy transfer of ownership between share holders
3 They have financial might and can hire experience and professional
staff.
4 A company registered as a limited liability entity is not subject to
easy liquidation.
5 The huge funds allow them diversify their portfolio and buy into other
companies.
Disadvantages of a Limited Liability
Company
1 There is separation between owners and management of the company since
business decisions are taken by the management alone.
2 The interpersonal relationship found in small businesses is non
existent
3 The require stringent laws to operate
4 Government regulates the activity to ensure compliance
Sole
Proprietorship
The basic form of business is trade
enterprise, operated run and financed by an individual. The major set back for
this kind of business is finance.
Finance limits its growth potential and hiring
of less experienced staff may contribute poorly to the growth of the company.
Registration for a sole enterprise is easy all you need is a business name that
is not already incorporated.
Advantages of Sole Proprietorship
1 the man is boss
2 easy registration processes
3 success and failure rest squarely on his shoulders
4 share none of the profit
Disadvantages
of Partnership
What are the Disadvantages of partnership?
* Unlimited liability
* The owners may have disagreements
*Compatibility issue
* Inadequate staffing
*Are unable to compete with limited
liability companies
Partnership
Another business format is
partnership which basically is business registered by two consenting partners.
They both contribute their resources to the formation of the company and lend
their expertise towards the companies successful.
The management structure may involve
direct participation of two of them or only one. They share in the success profit or failure
of the business Enterprise.
There are also supper partnerships
that could range from ten to one hundred. Once there is cohesion between partners
it could work. They also draw up remunerations and earn sharing formulas.
KINDS OF PARTNERSHIP
There are several kinds of partnership but only three will be featured
Active partnership
Active partnership is when the daily
decision, ruining and finance are borne by both partners. They take shared
risks and enjoy shared profit and loss.
Sleeping partnership
This type of partnership was
explained earlier where only one member takes part in the running of the
organization
Nominal partnership
A nominal partner puts his money
into the business and expects returns for his investment. He does not
contribute to the ruining of the business enterprise
Partners regulate their agreement through
many processes to protect both parties. Most times a lawyer prepares the deed of
agreement which is binding on all the people involved.
In the event of default legal action
can be taken on one or more partners. An advantage of this form of business arrangement
is more funds for the business.
They can hire better professionals
but one of their biggest drawbacks is unlimited liability like the one man
business owner. If you want to start a business or join others you should
consider all the advantages and disadvantages before taking the leap of faith.
Consider your exit and entry plans if you want
to invest in limited liability companies. Take advantage of initial public
offers where share prices are usually lower than the listed price at the stock exchange.
If you want to go it alone plan adequately,
draw up a budget and hire professionals.
How
to Identify a Business Opportunity
Starting out in business requires
careful planning and strategy. Have you identified a business opportunity?
Answering this question might direct
the kind of business you decide to do. If you fill a void and satisfy the
shopping needs you are in business.
*Poor service delivery
If you noticed very poor service delivery
you have found a good business opportunity. Having a good customer base is the
core reason business survives or fails. Meeting the demand is another thing
entirely.
*Advancement in technology
New technological break through may guarantee
success. Technology is dynamic using it in the production process might give a
budding entrepreneur an edge over his competitors.
New establishment have grown by using cutting
edge technology over their competitors
*price deferential
Pricing is important to the success
of an enterprise. The same applies to service delivery and management
structure.
*Availability of cheap labor
If you have the advantage of cheap
and experienced labor you will become competitive. More cash allows better
stocking of goods and better location.
*Proximity to raw materials
Locating your business close to raw
materials guarantees better deals and lower costs. You save on labor,
transportation and warehousing. Proximity to raw materials is one of the
biggest advantages a business owner may have over his competitors.
Starting a business is challenging
you need to determine between sole proprietorship and limited liability. Any
business with strong management structure has a chance for success.
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